Liechtenstein offers legal loophole for offshore account holders

British expatriates who have neglected to inform HMRC of their offshore accounts faced an aggressive campaign against them, with HMRC stating that people who are discovered to have such accounts undeclared could face devastating 200 percent penalty charges.

However, a legal loophole has been discovered that allows such individuals to cut their penalties down to just 10 percent. The Liechtenstein Disclosure Facility enables people to declare their tax bills and avoid the charges.

Previously the LDF was only usable by people with existing bank assets in Liechtenstein itself, but since December 1st 2009 the LDF can be used by anyone who has assets or investments in an offshore facility, under the condition that the transfer at least a few of their investments into Lichtenstein.

John Cassidy, of tax firm PKF, told The Telegraph: “The LDF is a golden opportunity to properly resolve matters with HM Revenue & Customs (HMRC), with only a 10 percent penalty being applied and the minimum of fuss. Many people with serious tax problems linked to offshore accounts will be able to use the LDF despite currently having no interest in Liechtenstein assets. It is financial madness not to address these problems immediately by taking advantage of the Liechtenstein facility currently on offer.”
He added that: “It is clear that things are only going to get tougher for offshore account holders. Common sense dictates that anyone who has not declared their offshore account should now use the LDF to get their tax affairs put right while it is still relatively cheap to do so."

According to research, news of the LDF has seemingly not spread far though, for only half of high-net worth, offshore-investing individuals were aware of its existence. Only 10 percent of these individuals had used the LDF with a further 30 percent declaring interest. Business investment, personal investment and inheritance tax were cited as the main reasons for using the LDF.

It is thought that once news of the LDF spreads, the amount of people who utilise it will soar, tax investigator Fiona Fernie said: “While we have registered many clients for the LDF with the HMRC, we were aware that at this stage in the programme there would be a large number of people with assets in Liechtenstein who were either not aware of or did not intend to participate in the LDF. We believe that this will change significantly once the Liechtenstein side of the agreement becomes law and financial intermediaries there are compelled to write to their UK resident clients to notify them of the agreement.”

Ms Fernie went on to say: “The agreement between the tiny principality of Liechtenstein and HMRC has given UK residents a huge opportunity to settle tax liabilities on offshore income or gains on better terms than any other HMRC offer”.

Expatriates who are intrigued by this situation would do well to note that in-line with HMRCs highly aggressive new stance on recouping tax, a deal such as that of the LDF is highly unlikely to be ever seen again. As a final word of advice Ms Fernie highlighted this point: “Anyone who rejects the carrot now could well face the stick later. There is an ever-increasing number of sources of information (available) to HMRC. An HMRC investigation as a result of information obtained from one of those sources could lead to tax becoming payable for a period of up to 20 years.”